TATA INVESTMENT CORPORATION LTD, MUMBAI V. ASST CIT 2(3), MUMBAI

ITA 1398/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3411 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 02-06-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 19-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KAILASH GAIKWADDR
• Keywords: Rule of consistency; Earning of tax free income
• Section: 14A

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -EBENCH MUMBAI , . . , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND C. N. PRASAD,JUDICIAL MEMBER ./ITA/1398/MUM/2013, /ASSESSMENT YEARS: 2009-10 TATA INVESTMENT CORPORATION LTD. ELPHINSTONE BUILDING, 2 ND FLOOR 10, VEER NARIMAN ROAD,MUMBAI-1. PAN:AAACT 4120 F VS. ACIT-2(3) ROOM NO.552, AAYAKAR BHAVAN M.K. ROAD,MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT) REVENUE BY: SHRI KAILASH GAIKWAD-DR ASSESSEE BY: S/SHRI M.M. GOLVALA AND AMEY WAGLE / DATE OF HEARING: 12.07.2016 / DATE OF PRONOUNCEMENT: 26.08.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 26.12.2012 OF THE CIT ( A)-6,MUMBAI, THE ASSESSEE HAS FILED THE PRESENT APPEAL.ASSESSEE AN INVESTMENT COMPANY FILED ITS RETURN OF INCOME ON 26.09.2009,SHOWING INCOME OF RS.28.91CROR ES UNDER THE NORMAL PROVISION AND BOOK PROFIT OF RS.148.70 CRORES U/S.1 15JB OF THE ACT.THE ASSESSING OFFICER (AO),COMPLETED THE ASSESSMENT,U/S .143(3)OF THE ACT,ON 29. 07.2011,DETERMINING THE ITS INCOME AT RS.32.25 CROR ES AND AT RS.149.22CRORES UNDER THE MAT PROVISIONS.THE ASSESSEE HAS FILED AN APPLICATION TO ADMIT ADDITIONAL GROUNDS AND HAS STATED THAT THE GROUNDS RAISED THROUGH THE APPLICATION WERE LEGAL IN NATURE.CONSIDERING THE FACT THAT SAME DEAL WITH LEGAL ISSUES,WE ALLOW THE ASSESSEE TO ARGUE THEM. 2. DURING THE COURSE OF HEARING BEFORE US, THE AUTHORI SED REPRESENTATIVE(AR) STATED THAT ASSESSEE WAS NOT INTERESTED IN PRESSING GROUNDS NUMBER 2 &3 AS WELL AS ADDITIONAL GROUNDS 1,2,3,4(B).HENCE,ALL THOSE GR OUNDS STAND DISMISSED AS NOT PRESSED. 3. HE FAIRLY CONSIDERED THAT GROUND NUMBER ONE IS TO B E DECIDED AGAINST THE ASSESSEE IN VIEW OF THE DECISION OF THE HONBLE BOM BAY HIGH COURT,DELIVERED IN 1398/M/13 TATA INVESTMENT CORPN.LTD. 2 THE CASE OF GODREJ & BOYCE MANUFACTURING CO.(328 I TR 81).WE ARE REPRODUC- ING THE RELEVANT PORTION OF THE ORDER AND SAME READ S AS UNDER: 54. WE DO NOT FIND ANY WARRANT FOR AN ARTIFICIAL RE ADING DOWN OF THE PRO VISIONS OF SECTION 14A IN THE MANNER THAT IS SOUGHT TO BE DONE . SECTION 14A PLAINLY STIPULATES THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EX PENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME UNDER THE ACT. DIVIDEND INCOME DOES NOT FORM PART OF THE TOTAL INC OME UNDER THE ACT BY VIRTUE OF THE PROVISIONS OF SECTION 10(33).CONSEQUENTLY, IT IS IM POSSIBLE TO ACCEDE TO THE SUBMISSION THAT SECTION 14A SHOULD BE CONFINED ONLY TO THOSE CATEGORIES OF INCOME, SUCH AS AGRICULTURAL INCOME, WHERE THE INCOME IS EX EMPT IN THE HANDS OF ANY PERSON. RESPECTFULLY,FOLLOWING THE ABOVE,GOA-1 IS DECIDED A GAINST THE ASSESSEE. 4. REMAINING GROUNDS,I.E.ADDITIONAL GROUNDS,DEAL WITH DISALLOWANCE TO BE MADE UNDER SECTION 14A OF THE ACT.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD EARNED EXEMPT INCOME UNDER TH E HEADS LONG TERM CAPITAL GAINS(LTCG FOR COMPUTATION UNDER THE NORMAL PROVISI ONS -RS.93.83 CRORES ), DIVIDEND AND INTEREST ON UTI 64 TAX FREE BONDS( FOR COMPUTATION UNDER THE NORMAL AND MAT PROVISIONS-RS.55.90 CRORES AND RS.0. 05 CRORES RESPECTIVE - LY).HE FURTHER NOTICED THAT THE ASSESSEE HAD DISALL OWED RS.2.82 CRORES BEING THE EXPENDITURE INCURRED TO EARN EXEMPT INCOME,THAT IT HAD DISALLOWED THE EXPENDITURE IN THE RATIO OF EXEMPT INCOME TO TOTAL INCOME.THE ASSESSEE CLAIMED THAT THE METHOD ADOPTED BY IT WAS APPROVED BY THE D EPARTMENT IN THE PAST AND THAT THE TRIBUNAL HAD ALSO CONFIRMED IT,THAT SAME M ETHOD SHOULD BE FOLLOWED FOR THE YEAR UNDER CONSIDERATION. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, AO HELD THAT THE METHOD FOLLOWED BY THE DEPARTMENT IN EARLIER YEARS COULD N OT BE ADOPTED,THAT THE LEGISLA -TURE HAD SPECIFICALLY PRESCRIBED THE METHOD TO ASC ERTAIN THE EXPENDITURE RELEVANT TO EXEMPT INCOME,THAT THE ASSESSEE WAS NOT MAINTAIN SEPARATE BOOKS OF ACCOUNTS FOR EXEMPT AND TAXABLE INCOMES,THAT IT EXP RESSED ITS INABILITY FOR EXPLAIN AS TO WHETHER A PARTICULAR EXPENDITURE DEBI TED IN THE PROFIT AND LOSS 1398/M/13 TATA INVESTMENT CORPN.LTD. 3 ACCOUNT WAS FOR THE PURPOSE OF EARNING TAX FREE INC OME OR TAXABLE INCOME,THAT THE DISALLOWANCE OF EARLIER YEARS ON PROPORTIONATE BASIS DID NOT GIVE THE CORRECT QUANTUM OF EXPENDITURE INCURRED TO EARN THE TAX FRE E INCOME. WITHOUT PREJUDICE THE ASSESSEE REWORKED THE DISALLO WANCE AT RS.3.34 CRORES, U/S.14A OF THE ACT,AS AGAINST THE DISALLOWANCE OF R S.2.82 CRORES MADE EARLIER. ACCORDINGLY,THE AO MADE A FURTHER DISALLOWANCE OF T HE DIFFERENCE OF RS.55.04 LAKHS(RS.3.34 LAKHS-RS.2.82 CRORES)AND ADDED IT TO THE INCOME OF THE ASSESSEE. WHILE COMPUTING THE INCOME UNDER THE MAT PROVISIONS ,HE ADOPTED THE SAME DISALLOWANCE. 5. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM,IT WAS AR GUED THAT THE ASSESSEE HAD DISALLOWED THE EXPENDITURE AS PER THE EALIER YEARS I.E.UP TO AY.2008-09,THAT DIS - ALLOWANCE SHOULD BE REASONABLE AND FAIR,THAT IT SHO ULD NOT BE COMPUTED BY MECHANICALLY APPLYING RULE 8D OF THE RULES,THAT OUT OF THE TOTAL EXPENSES OF RS.9.97 CRORES IT HAD ON ITS OWN DISALLOWED RS.3.15 CRORES,THAT OUT OF THE BALANCE EXPENDITURE OF RS.6.82 CRORES IT FURTHER MA DE A DISALLOWANCE OF RS.2.82 CRORES, THAT IT AMOUNTED TO 41% OF THE BALANCE EXPE NDITURE,THAT THE DISALLOW - ANCE MADE BY IT WAS FAIR AND REASONABLE, THAT THE A O HAD NOT RECORDED THE SATISFACTION AS TO WHY HE WAS NOT SATISFIED WITH TH E CORRECTNESS OF THE DISALLOW - ANCE OFFERED BY THE ASSESSEE.IT REFERRED TO THE CAS ES OF HERO CYCLES(323 ITR 518),SIL INVESTMENT LTD.,JINDAL PHOTO LTD.AND ARGUE D THAT THE AO HAD NOT DISCHARGED HIS ONUS. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND THE ASSESSMENT ORDER, THE FAA HELD THAT LEGAL AND FACTUAL POSITION OF DETERMI NATION OF EXPENDITURE ATTRIBUTABLE TO EXEMPT INCOME U/S.14A FOR AY.PRIOR TO APPLICABILITY OF RULE 8D OF THE INCOME TAX RULES,1962(RULES)AND SUBSEQUENT T O APPLICABILITY OF THE RULE WERE QUITE DIFFERENT, THAT THE PROVISIONS OF RULE W ERE APPLICABLE FROM AY.2008- 09,THAT AFTER APPLICABILITY OF RULE 8D THE MANNER O F COMPUTATION OF EXPENDITURE 1398/M/13 TATA INVESTMENT CORPN.LTD. 4 ATTRIBUTABLE TO EXEMPT INCOME IN PAST YEARS COULD N OT BE APPLIED IN THE YEAR UNDER APPEAL,THAT HAD RECORDED THE SATISFACTION ABOUT THE DISALLOWANCE MADE BY THE ASSESSEE,FINALLY,HE CONFIRMED THE ORDER OF THE AO. 6. DURING THE COURSE OF HEARING BEFORE US,THE(AR) ARGU ED THAT ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.55.90 CRORES AND LONG- TERM CAPITAL GAIN OF RS.93.83 CRORES,IT HAD SUO MOTU MADE A DISALLOWANCE OF RS.2.82 CRORES, THAT THE AO HAD MADE THE DISALLOWANCE OF RS.3.34CRORES,T HAT IT HAD MADE PROPORTIONATE DISALLOWANCE AS PER THE PROVISIONS OF SECTION 14A OF THE ACT, THAT THE AO HAD APPLIED THE FORMULA OF 0.5% OF THE INVES TMENT FOR MAKING THE DIS - ALLOWANCE,THAT IN THE AY. 2008-09 THE ASSESSEE HAD DISALLOWED THE EXPENDITURE AS PER THE PROVISIONS OF RULE 8D OF THE RULES,THAT BEFORE THAT THE DISALLOWANCE WAS MADE ON PRO-RATA BASIS,THAT COMPANIES FROM WHER E TAX-FREE INCOME WAS NOT RECEIVED SHOULD BE EXCLUDED FOR THE DISALLOWANCE,TH AT INVESTMENT MADE FOR STRATEGIC INVESTMENT SHOULD BE EXCLUDED FOR MAKING THE INVESTMENT.HE REFERRED TO THE CASES OF HOLCIM INDIA PRIVATE LIMITED (58TA XMANN.COM28); CHEMINVEST LIMITED(61TAXMANN.COM118);M/S. LAKHANI MARKETING(49 TAXMANN. COM 257); M/S.SHIVAM MOTORS (P) LTD. (55 TAXMANN.COM 262 );CO RRTECH ENERGY PVT. LTD. (372ITR97);ACB INDIA LIMITED (374ITR108);LIVING MED IA INDIA LTD.(70 SOT 536);DELITE ENTERPRISES(ITA/NO.110/2009 DT.26.2.200 9) AND REI AGRO LTD.(ITA NO.1331/KOL/2011 DT.19.6.2013). WITH REGARD TO ADDITIONAL GROUND ONE AND 4(A),HE ST ATED THAT FIGURE ADOPTED FOR NORMAL PROVISIONS OF THE ACT SHOULD ALSO BE ACCEPTE D FOR MAT PURPOSES. DEALING WITH GROUND NO.5,HE ARGUED THAT DISALLOWANC E U/S.14A SHOULD BE LESS THAN THE DISALLOWANCE UNDER REGULAR PROVISIONS. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT OUT OF THE TOTAL EXPENDITURE OF RS.9. 97C RORES THE ASSESSEE HAD DISALLOWED A SUM OF RS.3.15 CRORES INITIALLY,THAT T HE AO MADE A DISALLOWANCE OF 1398/M/13 TATA INVESTMENT CORPN.LTD. 5 RS.55.04 LAKHS AS AGAINST THE FURTHER DISALLOWANCE OF RS.2.82 CRORES MADE BY THE ASSESSEE, THAT IN THE EARLIER YEAR THE ASSESSEE WAS MAKING A PROPORTIONATE DISALLOWANCE OF THE EXPENSES AND THE AO WAS ALLOWIN G IT,THAT EVEN IN THE AY.2008-09,WHEN THE RULE 8D WAS APPLICABLE,THAT THE AO HAD NOT DISTURBED THE PATTERN FOLLOWED IN EARLIER YEAR,THAT IN THE YE AR UNDER CONSIDERATION THE AO REJECTED THE PATTERN FOLLOWED BY THE ASSESSEE THAT WAS ALSO APPROVED BY THE TRIBUNAL,THAT THE FAA HAD SIMPLY ENDORSED THE ORDER OF THE AO HOLDING THAT DIFFERENT TREATMENT WAS TO BE GIVEN IN MAKING THE D ISALLOWANCE U/S. 14A OF THE ACT IN THE PRE AND POST RULE 8D PERIOD.WE FIND THAT THE FAA HAS NOT PASSED A SPEAKING AND REASONED ORDER.HE HAD NOT CONSIDERED T HE FACT THAT IN THE IMMEDIATE EARLIER AY.,WHEN THE PROVISIONS OF RULE 8 D WERE VERY MUCH APPLICA -BLE THE AO HAD FOLLOWED THE PATTERN THAT WAS BEING ADOPTED IN THE EARLIER YEARS AND HE HAD NOT BROUGHT ON RECORD ANY EVIDENCE TO SH OW THAT FACTS FOR THE YEAR UNDER APPEAL WERE DIFFERENT THAN THE FACTS FOR THE EARLIER AY.RULE OF CONSISTENCY DEMANDED THAT AO SHOULD HAVE BROUGHT ON RECORD THE DISTINGUISHING FEATURES. BUT,HIS ORDER IS SILENT IN THAT REGARD.EVEN THEN IN A CRYPTIC ORDER THE FAA UPHELD THE STAND TAKEN BY THE AO.THEREFORE,IN THE INTEREST OF JUSTICE WE ARE RESTORING BACK THE MATTER TO THE FILE OF THE FAA FOR FRESH AD JUDICATION.HE WOULD DECIDE THE ISSUE RAISED BY THE ASSESSEE I.E.ADDITIONAL GRO UND NO.4 (B)AND 5,AFTER AFFORD - ING A REASONABLE OPPORTUNITY OF HEARING TO IT.ADDIT IONAL GROUNDS RAISED BY THE ASSESSEE(ADDL.GOA 4-B AND 5)ARE DECIDED IN ITS FAVO UR,IN PART. AS A RESULT, APPEAL FIL ED BY THE ASSESSEE STANDS PARTLY ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT O N 26 TH AUGUST,2016. 26 , 2016 SD/- SD/- ( . . / C.N. PRASAD ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 26.08.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1398/M/13 TATA INVESTMENT CORPN.LTD. 6 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR E BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.